Tuesday, January 1, 2013

MBE Fast Fact: Perfect Tender Rule in Installment Contracts

In a non-installment contract under the UCC, the perfect tender rule applies, and the buyer may reject any goods that fail in any respect to conform to the contract. But the rules change when questions present a situation concerning an installment contract.

In an installment contract (one which requires or authorizes the delivery of goods in separate lots to be separately accepted) the buyer can reject an installment only if the installment does not conform to the contract, and the non-conformity substantially impairs the value of that installment and cannot be cured.

Note that in a non-installment contract any defect will suffice for rejection, but in an installment contract, the defect must substantially impair the value of the installment. Only then may that particular installment be rejected by the buyer, and only if the seller does not cure the defect.

Further, if the non-conformity of any particular installment is such that it substantially impairs the value of the whole contract, then there is a breach of the whole contract. But the non-breaching party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation (which would have given the seller the opportunity to cure the defect).

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